GAO: More Cautions Needed About Retirement Payout
Options

July 29, 2003 (PLANSPONSOR.com) - The number of
retirees rolling over their lump-sum pension payouts or
leaving their assets in a qualified plan raises concerns
about the retirees' awareness level about the risks of not
having enough when they stop work.

That was the bottom line of a study by the US General
Accounting Office (GAO), which recommended amending ERISA
to add a mandatory participant notice about retirement
investing risks – both before and during retirement. “These
plan sponsors (canvassed by the GAO) generally did not
provide information on considerations relevant to managing
assets at and during retirement, such as the potential
risks that retirees face in managing their assets or on how
to assess needs in retirement,” the GAO researchers
wrote.

According to the GAO, there was a steadily increasing
percentage of participants between 1992 to 2000 either
rolling over assets into an individual retirement account
or leaving money in their employer plans. Some 32% of
retirees between 1992 and 1994 took one of these options,
while that figure grew to 47% by 1998 to 2000. Some 60% of
retirees opted to take their assets in the form of an
annuity.

Making the situation even more potentially troublesome
is the fact that the continuing trend away from traditional
defined benefit pensions and toward defined contribution
programs makes participants more responsible for managing
their assets during retirement, GAO researchers wrote.

To deal with the issue, the GAO recommended possibly
encouraging plans to offer annuity payout options as well
as possibly beefing up investor education programs focusing
on the post-retirement era.
“(Plan sponsors) indicated that participants could make
more informed decisions if they were aware of various risks
that affect the level of income they need during
retirement, such as the risk of outliving their assets and
the risk of declining purchasing power,” according to the
GAO report. “Participants also need help in understanding
how to assess the needs in retirement, strategies for
drawing down pension assets during retirement, and how
annuities provide retirement income.”